The reduction in import duty has made smuggling of mobile phone handsets a not very appealing proposition, but the government move seems to have spawned yet another form of grey market.

Customs duty on imported handsets was reduced from 10 per cent to five per cent and the special additional duty of four per cent was abolished in the mini-Budget.

According to Pankaj Mohindroo, president, Indian Cellular Association, the fall in customs duty has helped bring down the smuggled market of GSM mobile handsets from 50 per cent to 20 per cent but it has resulted in the increase of the parallel imports of mobile handsets.

Explaining this, he said, " There are four types of parallel imports. The first category, accounting 15 per cent of the market, is where both import duty and sales tax are paid. About 40 to 50 per cent of people who route mobile handsets through parallel imports pay customs duty but do not pay sales tax. And sales tax varies from four to 15 per cent across states."

Mohindroo said it was the fast moving mobile handset models which were being imported on which people failed to pay sales tax. About 20 per cent of imported handsets are undeclared to the customs on which neither customs duty nor the sales tax is paid.

The last variation in the grey market is where unauthorised dealers rake it in through tampered mobile handsets imported into country in the form of refurbished handsets -- they are also called software-pirated handsets.

Mohindroo said that in India there is lack of coordination between the customs department and the sales tax department. Therefore there is no method to find whether all people paying customs duty on imported handsets pay sales tax.

The Director General of Foreign Trade has clarified that refurbished mobile handsets brought into India as parallel imports are considered illegal.

Mohindroo said that in India there is lack of coordination between the customs department and the sales tax department. Therefore there is no method to find whether all people paying customs duty on imported handsets pay sales tax.

The Director General of Foreign Trade has clarified that refurbished mobile handsets brought into India as parallel imports are considered illegal.

The fall in customs duty has reduced the following handsets to cost less like Alcatel OT 320 by 9.39 per cent, Nokia N -3315 by 8 per cent, Panasonic- GD 55 by 11.42 per cent , Samsung R 220 by 11 per cent, Sony Ericsson T 105 by 8.14 per cent, Motorola C -200 by 9.73 per cent and Siemens A- 52 by 8.5 per cent.

Kunal Ahooja vice president- telecom, Samsung India Ltd, agreed that with customs duty reduction, illegal channels of mobile handsets entering India has come down.

The price of handsets has also come down due to slash in customs duty which has helped increase the sales of handsets. However, the industry still suffers as a result of parallel imports who fail to pay sale tax.

These imported handsets are sold to consumers at much lower cost without a warranty.

Ahooja said that refurbished mobile handset does have an impact on the brand name as it leads to the loss of credibility.

Panel to consider local handsets production: Meanwhile, a committee, comprising representatives of handset manufacturers, was formed recently to look into the proposal for manufacturing mobile handsets in India.

Mohindroo said, "The manufacturing committee is expected to finalise a consultant shortly, who would partner in submitting a detailed white paper to the ministry of communication and information technology. We have proposals from the top five consultants like McKinsey, Alcatel, Ernst & Young, PricewaterCoopers and KPMG."